ANNEXURE A: ACCOUNTANTS’ REPORT AND FIVE YEAR SUMMARY People’s Insurance Limited - Initial Public Offering | 83 People’s Insurance Limited – Initial Public Offering | 84 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 85 86 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 87 88 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 89 90 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 91 92 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 93 94 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 95 96 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 97 This page is intentionally left blank ANNEXURE B: INDEPENDENT AUDITORS’ REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2014 People’s Insurance Limited - Initial Public Offering | 99 People’s Insurance Limited – Initial Public Offering | INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS that are appropriate in the circumstances, but not for the purpose of OF PEOPLE’S INSURANCE LIMITED expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies Report on the Financial Statements used and the reasonableness of accounting estimates made by Board, as well We have audited the accompanying financial statements of People’s as evaluating the overall presentation of the financial statements. Insurance Limited, (“the Company”), which comprise the statement of financial position as at 31 December 2014, and the statement of income, We believe that the audit evidence we have obtained is sufficient and statement of comprehensive income, statement of changes in equity and, appropriate to provide a basis for our audit opinion. cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information. (set out on pages 140 Opinion to 184.) In our opinion, the financial statements give a true and fair view of the financial position of the Company as at 31 December 2014, and of its Board’s Responsibility for the Financial Statements financial performance and cash flows for the year then ended in accordance The Board of Directors (“Board”) is responsible for the preparation of with Sri Lanka Accounting Standards. these financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal controls as Board Report on other legal and regulatory requirements determines is necessary to enable the preparation of financial statements As required by Section 163(2) of the Companies Act No. 7 of 2007, we state that are free from material misstatement, whether due to fraud or error. the following: a) The basis of opinion and Scope and Limitations of the audit are as stated Auditor’s Responsibility above. Our responsibility is to express an opinion on these financial statements b) In our opinion : based on our audit. We conducted our audit in accordance with Sri Lanka - We have obtained all the information and explanations that were Auditing Standards. Those standards require that we comply with ethical required for the audit and, as far as appears from our examination, requirements and plan and perform the audit to obtain reasonable assurance proper accounting records have been kept by the Company, about whether the financial statements are free from material misstatement. - The financial statements of the Company, comply with the requirements of Section 151 of the Companies Act. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures As required by Section 47(2) of the regulation of Insurance Industry Act, selected depend on the auditor’s judgment, including the assessment of No. 43 of 2000, we state that, the accounting records of the Company have the risks of material misstatement of the financial statements, whether due been maintained in the manner required by the rules issued by the Insurance to fraud or error. In making those risk assessments, the auditor considers Board of Sri Lanka, so as to clearly indicate the true and fair view of the internal control relevant to the entity’s preparation of the financial financial position of the Company. statements that give a true and fair view in order to design audit procedures 23 March 2015 Colombo 100 | People’s Insurance Limited - Initial Public Offering STATEMENT OF INCOME For the year ended 31 December 2014 2013 Notes Rs. Rs. Revenue 3 3,411,464,345 3,194,839,580 Gross written premium 4 3,440,608,282 3,251,084,198 Net change in reserve for unearned insurance premium (155,403,811) (139,438,161) Gross earned premium 3,285,204,471 3,111,646,037 Premium ceded to reinsurers (293,936,371) (321,929,713) Net change in reserve for unearned reinsurance premium (800,936) 10,764,506 Net earned premium 2,990,467,164 2,800,480,830 Claims and expenses Net claims 5 (2,162,703,667) (2,120,218,765) Underwriting and net acquisition costs 6 (310,773,268) (292,259,004) Other operating and administrative expenses 7 (365,149,241) (281,481,769) Total claims and expenses (2,838,626,176) (2,693,959,538) Underwriting results 151,840,988 106,521,292 Other revenue Fee income 8 32,260,290 19,159,311 Interest and dividend income 9 314,786,047 358,792,809 Net fair value gains 10 70,523,465 13,210,206 Other operating revenue 11 3,427,379 3,196,424 Total other revenue 420,997,181 394,358,750 Profit before tax 12 572,838,169 500,880,042 Income tax expense 13 (122,711,070) (130,055,888) Profit for the year 450,127,099 370,824,154 Basic earnings per share 14 7.50 6.18 Dividend per share 15 3.50 2.25 The notes to the financial statements on pages 140 to 184 form an integral part of the financial statements. People’s Insurance Limited - Initial Public Offering | 101 STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2014 2013 Notes Rs. Rs. Profit for the year 450,127,099 370,824,154 Other comprehensive income Other comprehensive income to be reclassified to statement of income Available-for-sale financial instruments Reclassification during the year to statement of income (4,263,439) (1,679,666) Net change in fair value during the year 13,353,136 3,037,746 Deferred tax effect 1,575,378 (228,017) Other comprehensive income to be reclassified to statement of income 10,665,075 1,130,063 Other comprehensive income not to be reclassified to statement of income: Re-measurement loss on defined benefit plans 26 (631,969) (74,855) Other comprehensive loss not to be reclassified to statement of income (631,969) (74,855) Other comprehensive income for the year, net of tax 10,033,106 1,055,208 Total comprehensive income for the year, net of tax 460,160,205 371,879,362 The notes to the financial statements on pages 140 to 184 form an integral part of the financial statements. 102 | People’s Insurance Limited - Initial Public Offering STATEMENT OF FINANCIAL POSITION As at 31 December 2014 2013 Notes Rs. Rs. Assets Intangible assets 16 48,940,550 61,716,770 Property, plant and equipment 17 26,056,186 28,310,298 Financial investments 18 3,644,915,439 3,190,344,558 Reinsurance receivables 19 137,282,451 111,005,222 Insurance receivables 20 523,732,541 435,019,566 Deferred expenses 21 180,766,259 167,355,627 Other assets 22 11,942,400 22,204,603 Cash and cash equivalents 23 184,614,106 5,221,146 Total assets 4,758,249,932 4,021,177,790 Equity and liabilities Equity Stated capital 24 600,000,000 600,000,000 Retained earnings 797,803,529 482,676,430 Available-for-sale reserves 13,004,499 2,339,424 Other reserves (766,576) (134,607) Total equity 1,410,041,452 1,084,881,247 Liabilities Insurance liabilities 25 2,901,132,149 2,516,037,432 Employee defined benefit obligations 26 4,432,438 2,493,213 Other financial liabilities 27 276,831,117 292,615,952 Other liabilities 28 23,703,110 21,854,020 Reinsurance payables 62,262,572 23,979,310 Income tax payables 62,430,094 58,940,609 Deferred tax liabilities 29 13,576,697 18,344,385 Bank overdraft 30 3,840,303 2,031,622 Total liabilities 3,348,208,480 2,936,296,543 Total equity and liabilities 4,758,249,932 4,021,177,790 The notes to the financial statements on pages 140 to 184 form an integral part of the financial statements. These financial statements are in compliance with the requirements of the Companies Act No. 07 of 2007. Nilushan Somarathna Chief Financial Officer The Board of Directors is responsible for the preparation and presentation of these financial statements. Signed for and on behalf of the Board by: Jehan P. Amaratunga D. P. Kumarage Chairman Managing Director 23 March 2015 Colombo People’s Insurance Limited - Initial Public Offering | 103 STATEMENT OF CHANGES IN EQUITY Stated Retained Available-for- Other Total capital earnings sale reserves reserves Rs. Rs. Rs. Rs. Rs. Balance as at 1 January 2013 600,000,000 261,852,276 1,209,360 (59,752) 863,001,884 Profit for the year - 370,824,154 - - 370,824,154 Re-measurement loss on defined benefit plans - - - (74,855) (74,855) Net change in fair value of available-for-sale financial assets - - 1,130,064 - 1,130,064 Dividend paid during the year - (150,000,000) - - (150,000,000) Balance as at 31 December 2013 600,000,000 482,676,430 2,339,424 (134,607) 1,084,881,247 Profit for the year - 450,127,099 - - 450,127,099 Re-measurement loss on defined benefit plans - - - (631,969) (631,969) Net change in fair value of available-for-sale financial assets - 10,665,075 - 10,665,075 Dividend paid during the year - (135,000,000) - - (135,000,000) Balance as at 31 December 2014 600,000,000 797,803,529 13,004,499 (766,576) 1,410,041,452 The notes to the financial statements on pages 140 to 184 form an integral part of the financial statements.